For ordinary Russians and global investors alike, the financial ripples from Moscow’s war in Ukraine are now lapping at the doorstep of a historic first: a potential default on the country’s foreign debt, something unseen since the Bolshevik Revolution in 1917.
The immediate human impact is felt in the uncertainty gripping Russian households, where strict capital controls and severe economic measures have already been imposed by the Kremlin. While the ruble has been artificially propped up by oil and gas sales and other steps, the ability of everyday people to access foreign currency or conduct international transactions is increasingly constrained. For families with savings in dollars or euros, or those who rely on cross-border payments, the downgrade signals a further tightening of economic options.
Credit rating downgraded to ‘selective default’
The credit rating agency Standard & Poor’s has downgraded its assessment of Russia’s ability to repay foreign debt, signaling rising prospects that Moscow will soon default on external loans for the first time in more than a century. S&P Global Ratings issued the downgrade to “selective default” late Friday, after Russia arranged to make foreign bond payments in rubles on Monday when they were due in dollars. It said it didn’t expect Russia to be able to convert the rubles into dollars within the 30-day grace period allowed.
An S&P spokesperson explained that a selective default rating is when a lender defaults on a specific payment but makes others on time. While Russia has signaled that it remains willing to pay its debts, the Kremlin has also warned that it would do so in rubles if its overseas accounts in foreign currencies remain frozen.
Western sanctions have severely squeezed Russia’s economy. S&P and other rating agencies had already downgraded its debt to “junk” status, deeming a default highly likely. The country has not defaulted on foreign debt since the Bolshevik Revolution in 1917 when the Soviet Union emerged. Even in the late 1990s, following the Soviet Union’s demise, Russia was able to continue to pay foreign debts with the help of international aid. It did default on domestic debt, however.
Sanctions tighten after evidence of alleged war crimes
S&P said in a statement that its decision was based partly on its opinion that sanctions on Russia over its invasion of Ukraine “are likely to be further increased in the coming weeks, hampering Russia’s willingness and technical abilities to honor the terms and conditions of its obligations to foreign debtholders.”
Tightened sanctions were placed on Russia this week after evidence of alleged war crimes—the killing of civilians in the town of Bucha during Russian military occupation—barred it from using any foreign reserves held in U.S. banks for debt payments. Russia’s finance ministry said Wednesday that it tried to make a $649 million payment toward two bonds to an unnamed U.S. bank—previously reported as JPMorgan Chase—but that the tightened sanctions prevented the payment from being accepted, so it paid in rubles.
Russia has used strict capital controls, other severe measures, and proceeds from oil and gas sales to artificially prop up the ruble.
What to watch next
Looking ahead, the financial spotlight remains fixed on whether Russia can convert the ruble payments into dollars within the 30-day grace period allowed. The S&P downgrade—and the potential for further sanctions—will test the Kremlin’s ability to maintain access to international capital markets. For Russian citizens and foreign investors, the coming weeks will reveal whether the country can avoid a default that would mark its first such event on foreign debt in over a century, reshaping economic ties for years to come.
